U.S.-Japan squabble over beef threatens Trans-Pacific Partnership

A man takes part in a Tokyo protest against Trans-Pacific Partnership trade talks ahead of President Obama's visit to Japan.

A man takes part in a Tokyo protest against Trans-Pacific Partnership trade talks ahead of President Obama's visit to Japan. (Tomohiro Ohsumi / Bloomberg)

Don Lee

Aides hope to reach a compromise on tariffs for beef and, to a lesser extent, pork and dairy products

WASHINGTON — After more than four years and 20 rounds of negotiations, the world's biggest free-trade deal in a generation has come down in good part to this: the United States and Japan squabbling over beef.

With President Obama due to arrive Wednesday in Tokyo for a two-day summit with Prime Minister Shinzo Abe, their aides have been pulling all-nighters in the hope of reaching a compromise on tariffs for beef and, to a lesser extent, pork and dairy products.

The proposed 12-nation Trans-Pacific Partnership is seen as the centerpiece of Obama's promised re-balance in foreign policy priorities to fast-growing Asia-Pacific. Even if the two leaders can't conclude a deal, aides hope that they will be able to propel the trade talks into their final lap.

Both sides have downplayed expectations ahead of Obama's state visit, which comes amid geopolitical tensions in East Asia and questions about America's commitment to its allies in the face of China's rising economic and military power.

If the U.S. cannot deliver on this, criticisms that the re-balance is just rhetoric take hold. It's a very dangerous precedent.— Mireya Solis, an East Asia specialist at the nonpartisan Brookings Institution in Washington

Some analysts think that Abe and Obama will announce an agreement, at least in principle, at a joint news conference scheduled for Thursday. Anything less, they argue, would embarrass the two leaders, who had both pledged wholehearted support for the trading alliance.

With Vietnam, Australia and other Pacific Rim nations waiting on the world's largest and third-largest economies, failure to show substantive progress could weaken or even crush the spirit of the talks, which are aimed at eliminating tariffs and establishing rules on trade and investment for countries that account for 40% of the global economy.

Tomohiro Ohsumi / Bloomberg

A man holds a placard as he takes part in a protest against Trans-Pacific Partnership trade talks outside the Japanese prime minister's official residence in Tokyo.

A man holds a placard as he takes part in a protest against Trans-Pacific Partnership trade talks outside the Japanese prime minister's official residence in Tokyo. (Tomohiro Ohsumi / Bloomberg)

Should negotiations unravel, the U.S. would lose the chance to set regulations on issues such as intellectual property rights, government subsidies and procurement practices in Asia-Pacific — the heart of global trade.

Though China is not a member of the Trans-Pacific Partnership, U.S. officials hope that it one day will join and follow the standards designed largely by Washington, as opposed to a competing Beijing-devised framework.

Politically, a stalled trade deal will undermine U.S. efforts to strengthen its position in the region, said Mireya Solis, an East Asia specialist at the nonpartisan Brookings Institution in Washington.

"If the U.S. cannot deliver on this, criticisms that the re-balance is just rhetoric take hold," she said. "It's a very dangerous precedent."

Despite White House insistence that the trade pact would create American jobs and generate billions of dollars of additional exports, many U.S. lawmakers, mainly from Obama's own party, are wary of the negotiations.

Some have urged the administration to do more to open up Japan's car market and to include strong language to prevent trading partners from using currency exchange rates to gain an advantage.

Significantly, lawmakers have yet to give the president fast-track authority, which would allow him to present a trade agreement to be ratified by Congress without amendments. Without it, American officials can't guarantee to other countries that Congress won't seek to change the deal before they vote on it.

"The absence of negotiating authority tends to make our trading partners less willing to make concessions to us [because of] the fear they would be taking political risks for nothing," said James Bacchus, a former Democratic House member from Florida and former chairman of the World Trade Organization's appellate body.

Even with fast-track authority, it would be hard to come to terms on beef. The deal has gotten stuck largely because of Japan's import tariffs on sensitive farm goods, notably beef, which carries a 38.5% duty.

The U.S. and many countries in Europe and Asia have agricultural cooperatives, but none has the kind of financial power and reach as those in Japan.

They have a hand in Japanese banking, life insurance and other financial operations for farmers and non-farmers alike, as well as control of sales of all agricultural products and services, according to Kazuhito Yamashita, research director at the Canon Institute for Global Studies in Tokyo.

What's more, Japan's beef and farming families are a core constituency for the Japanese prime minister and his Liberal Democratic Party. From the beginning, they have opposed Abe's interest in joining the Trans-Pacific Partnership.

Still, the beef, pork and dairy industries involve only about 100,000 households out of 46 million in Japan, said Richard Katz, chief editor of the Oriental Economist Report, a newsletter in New York that specializes in Japan and Japan-U.S. relations.

"A really big deal is being sacrificed on the altar of 100,000 households in Japan," he said. "Obama's too weak; he can't get it through Congress. Abe has got strength but doesn't have the guts."

Although Abe's public approval rating remains high, unlike Obama's, the Japanese prime minister has promised to revive the country's economy from two decades of economic malaise.

Many in and outside Japan, including Abe's own ministers, also see Japan's entry in the Trans-Pacific Partnership as an important step to liberalize markets and overhaul regulations that are vital to sustaining Japan's economic growth.

If Abe plays hardball to the point that it threatens the trade pact's future, foreign investors could produce a shock to the Japanese stock market and erode Abe's political power.

"This really is going to be the litmus test on Abe's ability to deliver on the structural reforms," said the Brookings Institution's Solis.

Deborah Elms, a trade expert who has monitored the negotiations from Singapore, doesn't think that the tariff dispute will be settled this week, but believes that both sides have too much at stake to risk a collapse in the talks. The issue of beef is in the billions of dollars, but U.S. trade with the Trans-Pacific Partnership was about $1.8 trillion.

"They have invested an awful lot to watch it wither on the vine for a relatively modest amount," said Elms, who heads the Temasek Foundation Center for Trade & Negotiations.

Trade negotiators of the 12 countries are scheduled to meet again in mid-May in Vietnam, followed by a higher-level meeting of trade ministers at the end of the month in China.

"As soon as the Japan-U.S. bilateral gets resolved," Elms said in a note of optimism, "the dominoes are in place for the last parts of the agreement to fall in line."